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Online Exclusive Update #74 - The China Bubble

Conspiracy of the Rich

The 8 New Rules of Money

by Robert Kiyosaki

Online Exclusive Update - #74
  December 6, 2010

The China Bubble

China raised their interest rates in mid-October. This is an important change to follow. It’s even more important than whether Texas or San Francisco wins the World Series.

My fear is that the rise in interest rates was to stop the speculation in China’s real estate bubble. I thought the China real estate bubble would have burst by now, but I was early in my expectations. I could be wrong, but I think this rise in rates is bad news for the world economy. China has a serious inflation problem, which may turn into a financial crisis next year.

So, what does China’s raising of interest rates mean to you? It means China could follow the same real estate crash the US went into in 2007. If investors and builders cannot sell their properties, the Chinese property bubble will burst. And if the China property market goes bust, the world will feel the shock waves.

Hikes in interest rates actually increase inflation, contrary to what most economists think. The reason inflation spikes when interest rates go up is because money follows higher interest rates. For example, in the US, bonds are paying zero. Higher interest rates in China will cause hot money to flow from low-interest rate countries, such as the US, into higher interest rate countries such as China. This will cause inflation as too much money chases too few goods and services. If inflation spikes, the Chinese economy will crash—possibly as early as next year.

If too much money starts to flow into China, their currency, the yuan, may increase in value, causing Chinese goods to become more expensive. This will cause unemployment.

So, this tiny rise in Chinese interest rates may not seem like a big deal, but given the size and power of the Chinese economy, a little thing can turn out to be a very big thing.

This is all part of the games being played with money, which is why your financial education and awareness is more and more important.

Thank you for supporting COR.

Robert Kiyosaki